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Illinois Pension Ruling Sets Stage for Riots…Everywhere

Rick Ackerman

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May 11, 2015

What can a state government do if it owes its retired workers vastly more in pension benefits than it will ever be able to pay? The answer, as far as the Illinois Supreme Court is concerned, is that the state will simply have to squeeze blood from a stone when the inevitable fiscal crisis hits. And it surely will, since the gap between tax revenues and pension obligations is conservatively estimated at $111 billion. Illinois doesn’t have that kind of money lying around, and probably never will. So what then? My expectation is that the court’s decision last week invalidating cost savings implemented in 2013 will eventually lead to rioting in the streets and a civil war that pits taxpayers against public-employee unions.

Unions Won’t Budge

From a political standpoint, the irresistible force and the immovable object have been set to collide. The public-employee unions won’t budge, especially now that the state’s highest court is on their side, rejecting even such modest budgetary measures as might have averted bankruptcy. The justices wouldn’t even countenance scaling back a COLA that has been compounding at 3% since 1989. For its part, Illinois will be able to claim, with blunt honesty, that the money simply isn’t there. The predictable “compromise” will be a court order effectively requiring Illinois to raise taxes until there is enough money to support the retirees more or less forever. Well before then, however, taxpayers will begin to exit Illinois with the urgency of North African refugees fleeing ISIS. Even now, one out of every four dollars that Illinois workers pay in taxes goes toward pension benefits for the state’s retired workers.

Can you see where this is leading? Trouble is, there are probably at least two dozen other states whose pension assumptions are nearly as shaky as those of Illinois. Indeed, when the Great Pension Bust that is surely coming starts to unfold in California, New Jersey and New York, it will make the fiscal problems of Illinois look like a hill of beans. To put things in perspective, consider the budget woes of Flint, Michigan. To remedy a recurring annual deficit of about $20 million (and growing), the city has slashed services and amenities almost to nothing.  Even so, the long-term structural budget problem – chiefly the shortfall between tax revenues and pension obligations for retired city employees – reportedly exceeds $500 million.

As Flint goes, so goes the nation?